3 Small-Cap Stocks with Questionable Fundamentals

May 01, 2025 at 00:38 AM EDT

NOVT Cover Image

Investors looking for hidden gems should keep an eye on small-cap stocks because they’re frequently overlooked by Wall Street. Many opportunities exist in this part of the market, but it is also a high-risk, high-reward environment due to the lack of reliable analyst price targets.

The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three small-cap stocks to swipe left on and some alternatives you should look into instead.

Novanta (NOVT)

Market Cap: $4.27 billion

Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.

Why Are We Wary of NOVT?

Annual revenue growth of 5% over the last two years was below our standards for the industrials sector
Flat earnings per share over the last two years lagged its peers
Free cash flow margin shrank by 7.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Novanta’s stock price of $118.93 implies a valuation ratio of 31.3x forward price-to-earnings. Read our free research report to see why you should think twice about including NOVT in your portfolio.

Titan International (TWI)

Market Cap: $468.2 million

Acquiring Goodyear’s farm tire business in 2005, Titan (NSYE:TWI) is a manufacturer and supplier of wheels, tires, and undercarriages used in off-highway vehicles such as construction vehicles.

Why Do We Steer Clear of TWI?

Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.4% annually over the last two years
Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 14.1%
Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable

Titan International is trading at $7.35 per share, or 20.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than TWI.

ScanSource (SCSC)

Market Cap: $774.1 million

Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ: SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.

Why Should You Sell SCSC?

Customers postponed purchases of its products and services this cycle as its revenue declined by 10.4% annually over the last two years
Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 11.7% annually, worse than its revenue
Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $34.27 per share, ScanSource trades at 9x forward price-to-earnings. To fully understand why you should be careful with SCSC, check out our full research report (it’s free).

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.

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3 Small-Cap Stocks with Questionable Fundamentals

Novanta (NOVT)

Titan International (TWI)

ScanSource (SCSC)

Stocks We Like More

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